STATE ASSESSMENT MANUAL
MARCH 2003
CALIFORNIA STATE BOARD OF EQUALIZATION
CAROLE MIGDEN, SAN FRANCISCO FIRST DISTRICT
BILL LEONARD, ONTARIO SECOND DISTRICT
CLAUDE PARRISH, SANTA ANA THIRD DISTRICT
JOHN CHIANG, LOS ANGELES FOURTH DISTRICT
STEVE WESTLY, SACRAMENTO STATE CONTROLLER
JAMES E. SPEED, EXECUTIVE DIRECTOR
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FOREWORD
The State Assessment Manual describes the principles and procedures used by the Board in the
assessment of state- assessed property. It is designed to assist Board staff, state assessees and their
representatives, county assessors and their staffs, and others with an interest in state assessment.
This edition of the State Assessment Manual is an update of the manual that was rewritten in
November 2000. The November 2000 manual revised and superseded an existing manual
( Assessors' Handbook Section 541, Assessment of Public Utilities) on the same subject which
was first published in May 1981.
Important topics covered include the following: state assessment jurisdiction, standard of value,
the unit valuation concept, allocation of unitary value, and appeals of state assessments.
Appendixes address several other aspects of state assessment, including the Private Railroad Car
Tax, property transactions and jurisdictional changes, the Board's system of property classification
codes, a calendar of important state assessment dates, and pertinent constitutional, statutory,
regulatory, and judicial citations. The manual also contains a glossary and bibliography.
The manual was prepared within an open process that allowed input from industry representatives,
county assessors, and others. Any issues regarding the manual's final language and contents that
could not be resolved by consensus among interested parties were voted on and resolved by the
Members of the Board of Equalization after hearing relevant testimony from interested parties and
Board staff.
Under Government Code sections 15606 et seq., the State Board of Equalization is charged with
the duty of administratively enforcing and interpreting the statutes governing the local assessment
function. While regulations adopted by the State Board of Equalization are binding as law, Board-adopted
manuals are advisory only. Nevertheless, courts have held that they may be properly
considered as evidence in the adjudicatory process. 1 The citations and law references in this
publication were current as of the writing of the manual.
David J. Gau
Deputy Director
Property and Special Taxes Department
March 2003
1 Coca- Cola Co. v. State Board of Equalization ( 1945) 25 Cal. 2d 918; Prudential Ins. Co. v. City and County of
San Francisco ( 1987) 191 Cal. App. 3d 1142; Hunt Wesson Foods, Inc. v. County of Alameda ( 1974) 41
Cal. App. 3d 163.
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TABLE OF CONTENTS
CHAPTER 1: STATE ASSESSMENT JURISDICTION............................................................ 1
HISTORICAL BACKGROUND............................................................................................................... 1
CONSTITUTIONAL PROVISIONS.......................................................................................................... 2
SOME JURISDICTIONAL PRINCIPLES ................................................................................................... 3
SPECIFIC AREAS OF BOARD JURISDICTION ........................................................................................ 5
Railroads and Private Railroad Cars ......................................................................................... 5
Intercounty Pipelines .................................................................................................................. 5
Telephone Companies.................................................................................................................. 6
Interexchange and Commercial Mobile Radio Service .............................................................. 7
Gas and Electric Companies....................................................................................................... 8
Board Jurisdiction Includes Unitary and Nonunitary Property............................................... 10
STATE ASSESSMENT PROCESS ......................................................................................................... 10
CHAPTER 2: STANDARD OF VALUE .................................................................................... 12
MARKET VALUE STANDARD ............................................................................................................ 12
STATE- ASSESSED PROPERTY AND ARTICLE XIII A OF THE CALIFORNIA CONSTITUTION .................. 14
RAILROAD REVITALIZATION AND REGULATORY REFORM ACT......................................................... 15
CHAPTER 3: VALUATION USING THE UNIT CONCEPT.................................................. 16
APPRAISAL UNIT AND THE PRINCIPLE OF UNIT VALUATION ............................................................. 16
THEORETICAL BASIS........................................................................................................................ 16
LEGAL BASIS.......................................................................................................................... ........ 18
ADJUSTMENTS WHEN USING THE PRINCIPLE OF UNIT VALUATION................................................... 19
CLASSIFICATION OF STATE- ASSESSED PROPERTY............................................................................ 19
Unitary Property ....................................................................................................................... 19
Nonunitary Property.................................................................................................................. 20
Operating Nonunitary Property................................................................................................ 21
Nonunitary Rail Transportation Property ................................................................................ 21
CHAPTER 4: UNITARY VALUE INDICATORS..................................................................... 22
CHAPTER 5: ALLOCATION OF UNITARY VALUE ............................................................ 24
INTERSTATE ALLOCATION ............................................................................................................... 25
Basis for Interstate Allocation .................................................................................................. 25
Interstate Allocation Procedures .............................................................................................. 26
INTRASTATE ALLOCATION............................................................................................................... 29
Basis for Intrastate Allocation .................................................................................................. 29
Intrastate Allocation Procedures .............................................................................................. 29
Exceptions to General Intrastate Allocation Method ............................................................... 30
STATE- ASSESSED PROPERTY NOT SUBJECT TO UNITARY ALLOCATION............................................ 32
BOARD'S TAX- RATE AREA SYSTEM................................................................................................. 33
CHAPTER 6: APPEALS OF STATE ASSESSMENTS............................................................ 34
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VALUATION PROCESS...................................................................................................................... 34
APPEALS PROCESS – ASSESSMENTS AND PENALTIES ....................................................................... 35
Petition for Reassessment, Penalty Abatement, or Correction of Allocated Assessment......... 36
Board Hearing........................................................................................................................ .. 37
Filing a Claim for Refund ......................................................................................................... 39
Filing an Action in Superior Court ........................................................................................... 39
AUDIT REVIEW AND ESCAPE ASSESSMENTS .................................................................................... 40
Audit Conference ....................................................................................................................... 40
Escape Assessment Appeals....................................................................................................... 40
SUMMARY OF APPEALS ACTIVITIES AND PERTINENT DATES AND/ OR DEADLINES ............................ 41
APPENDIX A: PRIVATE RAILROAD CAR TAX................................................................... 43
APPENDIX B: PROPERTY TRANSACTIONS AND JURISDICTIONAL CHANGES........ 46
APPENDIX C: BOARD PROPERTY CLASSIFICATION CODES........................................ 54
APPENDIX D: STATE ASSESSMENT CALENDAR............................................................... 56
APPENDIX E: CONSTITUTIONAL PROVISIONS, STATUTES, REGULATIONS, AND
SIGNIFICANT CASES................................................................................................................ 58
CONSTITUTIONAL PROVISIONS........................................................................................................ 58
REVENUE AND TAXATION CODE PROVISIONS.................................................................................. 58
PROPERTY TAX RULES..................................................................................................................... 68
CASES ............................................................................................................................... ............. 70
GLOSSARY....................................................................................................................... .......... 74
BIBLIOGRAPHY................................................................................................................... ..... 84
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CHAPTER 1: STATE ASSESSMENT JURISDICTION
HISTORICAL BACKGROUND
Under the California Constitution of 1849, the state's first, the property tax was the primary source
of revenue for both state and local government. Local assessors were responsible for the
assessment of all taxable property; the state had no assessment responsibilities. To support its
operations, however, the state levied a separate state tax on the locally generated assessment rolls.
Under the Constitution of 1879, the Board of Equalization assumed responsibility for the
centralized assessment of the roadway, roadbed, rails, rolling stock, and franchises of intercounty
railroads, marking the beginning of state assessment in California. The Board's assessments were
apportioned to the local assessment rolls; all other property remained subject to assessment by the
local assessor of the county in which the property was situated. There was no change in the way
taxes were levied by the state and local jurisdictions— both continued to levy a tax against the
local assessment rolls. 2
Under a constitutional amendment of 1910, implemented through the Comprehensive Tax Act of
1911, the state, and hence the Board, took a leave of absence from the assessment function for
roughly a quarter of a century. The primary feature of this legislation was to separate the sources
of state and local tax revenues. State government was supported by a new set of taxes levied
exclusively for state purposes in lieu of property taxes. The in- lieu taxes reached a number of
industries and were levied as follows:
1. On gross receipts from operations of railroad companies, gas and electric companies,
telephone and telegraph companies, car companies and express companies, in lieu of all
other taxes and licenses on the operating property of such companies.
2. On gross premiums of insurance companies in lieu of all other taxes and licenses, except
local taxes on real property.
3. On capital stock of banks in lieu of all other taxes and licenses on such stock and on the
banks except local taxes on real property.
4. On all franchises, general, corporate and special, except franchises held by public utilities,
insurance companies, or banks otherwise taxed for state purposes.
While the Board was charged with assessing the foregoing companies for the in- lieu tax levies, all
other property remained locally assessed and subject to ad valorem property taxation for the
support of local government.
2 Under the Constitution of 1879, only railroad property was subject to state assessment, and only enumerated
types of railroad property.
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In 1933, a state fiscal crisis led to a constitutional amendment producing significant tax reform.
The resulting Riley- Stewart Plan for tax relief, perhaps best known for introducing the sales and
use tax to California, abandoned the in- lieu gross receipts tax and once again made the property of
" public utilities" subject to ad valorem taxation. The plan retained the feature of central assessment
by the Board introduced in the Constitution of 1879, and extended the Board's assessment
jurisdiction to a broader class of " public utilities" and to all of the taxable property of certain
types of enterprises. As previously, state assessments were allocated to the local assessment rolls
for the purpose of local property taxation, but now no state tax was levied on the local rolls. The
current jurisdiction of state assessment, described in greater detail below, essentially derives from
the constitutional amendment of 1933, as does the state's present tax structure, in which non-property
tax sources support state government ( primarily the sales and use tax and the income tax)
and property taxes support local jurisdictions.
CONSTITUTIONAL PROVISIONS
Section 19 of article XIII of the California Constitution requires the Board to annually assess
certain described types of property. The first paragraph of section 19 divides this property into
two categories:
The Board shall annually assess ( 1) pipelines, flumes, canals, ditches, and
aqueducts lying within 2 or more counties and ( 2) property, except franchises,
owned or used by regulated railway, telegraph, or telephone companies, car
companies operating on railways in the State, and companies transmitting or selling
gas or electricity. This property shall be subject to taxation to the same extent and
in the same manner as other property.
The first category of property consists of specific types of improvements, that is, pipelines, flumes,
canals, ditches, and aqueducts lying within two or more counties. The important qualification with
regard to this category is that the properties are located " within two or more counties," without
regard to the nature of the property owner. For example, if an oil company owns a pipeline lying
within two or more counties, the Board is required to assess the pipeline but not other property
owned by the oil company.
The second category of property consists of all taxable property, excluding franchises, owned or
used by regulated railway, telegraph, or telephone companies; car companies operating on
railways in the state; and companies transmitting or selling gas or electricity. Rather than being
based on the type of property to be assessed, this category includes all of the property that is
owned or used by specified types of companies. Under this category, all of the property owned or
used by a specified company is subject to the Board's assessment. For example, Southern Pacific
Railroad was at one time the largest private property owner in the state. For historical reasons, it
owned large tracts of land in addition to the property owned or used for railroad purposes. Under
section 19, the Board is required to assess all of its property, including the tracts of land not
actually used for railroad purposes.
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The provisions of the Revenue and Taxation Code implementing section 19 of article XIII are
found in sections 721 and following. 3 Section 721 states that the Board shall annually value and
assess all of the taxable property within the state that is to be assessed by it pursuant to section 19
of the California Constitution and any legislative authorization thereunder. Section 721, however,
does not provide any definition or detail regarding the type of property to be assessed beyond that
listed in section 19 of article XIII.
Several historical reasons led to central assessment by the Board most of which derived from
perceived problems associated with the assessment of railroad property during the 1870' s, shortly
after California's statehood. These issues mirrored those in several eastern and Midwestern states
that arose slightly earlier.
First, early railroads were the first entities to operate across county, and often state, boundaries.
The " continuous property" of railroads ( e. g., roadway, roadbed, and rails) was assessed markedly
differently among counties. This created a significant problem related to intercounty uniformity and
equalization of assessment, a mandate of the state's first Constitution. Centralized assessment was
also considered the most efficient assessment solution for " migratory properties," such as private
railroad cars, because of the difficulty of determining the location, or situs, of such properties on
the lien date.
A second consideration involved doubts regarding the ability of local assessors to render
equitable assessments given the political power of the early railroads. In this context, state
assessment represented a countervailing power.
Finally, there was a concern that the " true value" of railroad property as part of an operating unit,
or going concern, was not being reflected in the separate assessments of the local assessors.
SOME JURISDICTIONAL PRINCIPLES
Over the years, there have been numerous interpretations of the language in section 19 of
article XIII, by the Board itself and others, relating to the Board's assessment jurisdiction. This
section discusses some of the principles that have emerged and how they have been applied.
First, as a quasi- judicial, constitutional body, the Board has the right to determine its own
jurisdiction in the first instance. In essence, this means that the Board has the right to pass on its
own jurisdiction first, and that this determination will stand unless overruled by a higher legal
authority. This power stems from other powers conferred on the Board in sections 11, 17, 18, and
19 of article XIII of the State Constitution that are quasi- judicial in nature and on the Board's status
as an agency of constitutional origin.
Second, the Board's assessment jurisdiction over property owned by various types of common
carrier ( i. e., transportation) and public utility companies extends both to those that are " regulated"
3 All references to " section 19" refer to article XIII of the California Constitution. All other " section" references
refer to a section of the Revenue and Taxation Code, unless otherwise designated.
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and those that are " unregulated." For example, section 19 of article XIII grants the Board
jurisdiction to assess " property, except franchises, owned or used by regulated railway, telegraph,
or telephone companies, car companies operating on railways in the state, and companies
transmitting or selling gas or electricity." In this passage, the word " regulated" does not modify
" car companies" or " companies transmitting gas or electricity." Thus, the Board's jurisdiction
does not extend to unregulated railway, telegraph, or telephone companies, but may extend to car
companies and companies transmitting or selling gas or electricity whether or not such companies
are regulated. 4
The majority of companies whose property the Board has historically assessed have been
regulated in the sense that they hold certificates of public convenience and necessity ( CPCN) from
the California Public Utilities Commission ( CPUC), or in the sense that many communications
companies are regulated by the Common Carrier Bureau of the Federal Communications
Commission ( FCC).
Until recent years, many companies subject to state assessment were also rate- regulated, meaning
that in exchange for certain monopoly rights over a designated franchise or service area, the
companies were limited in the rates they could charge. Other companies were, and some still are,
rate- base/ rate- of- return regulated, meaning that the rates, or income, that regulators allow such
companies to earn are designed to cover costs, including taxes and depreciation, and also provide
a " fair" rate of return on investment, often as measured by a fair rate of return on rate base. Rate
base, with some modifications, is essentially the book, or accounting, value of the company's
assets used in providing service. With the deregulation of several industries in recent years,
however, the majority of state assessees are no longer subject to rate regulation or rate- base/ rate-of-
return regulation.
Third, while the Board historically has assumed jurisdiction of all investor- owned " public
utilities," some state assessees are not public utilities in the common meaning of that term. A
definition of " public utilities" from section 3, article XII, of the California Constitution provides,
in part:
Private corporations and persons that own, operate, control, or manage a line,
plant, or system for… the production, generation, transmission, or furnishing of heat,
light ... power … directly or indirectly to or for the public … are public utilities
subject to control by the Legislature….
Some of the types of state assessees enumerated in section 19 of article XIII are within the above
definition of investor- owned public utilities and some are not. For example, many companies that
own pipelines, canals, or aqueducts are not public utilities by this definition. Consequently, the
Board does not rely on a definition of " public utilities" as the touchstone of its jurisdiction. Rather,
the Board has consistently assessed only those types of property and the property of those types of
4 By interpretation, see Proposed Revision of California Constitution, article XIII, Appendix to Senate Daily
Journal, May 14, 1974, p. 27; by application, see Rule 905 of Title 18, Public Revenues, California Code of
Regulations, Assessment of Electric Generation Facilities.
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companies enumerated under section 19 of article XIII, whether or not the companies are
" regulated" or meet the definition of a " public utility." The Board's determination of jurisdiction
does not rest on the outward appearances of a property or company, but rather on whether the
Board concludes that section 19 article XIII provides the Board with jurisdiction to assess. A
recent example of the Board determining both the extent and limits of its jurisdiction under section
19 of article XIII occurred as a result of the restructuring of the electric industry, which is
discussed in further detail below under that specific area of the Board's jurisdiction.
SPECIFIC AREAS OF BOARD JURISDICTION
RAILROADS AND PRIVATE RAILROAD CARS
The property of " regulated railways" is specifically enumerated in section 19 of article XIII as
subject to state assessment. All railways are regulated in that they are subject to safety and
common carrier regulation by the United States Department of Transportation. The Board holds
assessment jurisdiction over all railways, including so- called " shortline railroads"— those that
own track and are located within only one county. 5
The property of " car companies operating on railways in the state" is also specifically enumerated
in section 19 of article XIII. The Private Railroad Car Tax, at sections 11201 and following,
prescribes a specific method for the assessment of this type of property. As unambiguously defined
in section 11203, a " private railroad car:"
… includes any railroad rolling stock intended for the transportation of any persons,
commodity, or material, operated on the railroads of this state, which car is owned
by a person other than a railroad or the National Railroad Passenger
Corporation….
In addition to assessing private railroad cars, the Board also levies and collects the corresponding
tax, which is deposited in the state's General Fund. 6
INTERCOUNTY PIPELINES
As previously discussed, intercounty pipelines are subject to Board assessment because of the type
of property they are and because they are located within two or more counties, not because of the
nature of their ownership.
In Southern Pacific Pipe Lines, Inc. v. State Board of Equalization ( 1993), the court held that the
Board could not assess three pipeline facilities because the facilities were not essential and
necessary to the operation of intercounty pipelines. 7 The court held that the term " pipelines" in
5 In a transportation- industry context, a " common carrier" can be defined very generally as an entity engaged in
transporting persons, goods, or messages for the public over a regular route, according to specified schedule, and
for an approved charge or fee, all of which are usually subject to government regulation. Common carriers are
deemed to be " affected with the public interest" and are regulated by the U. S. Department of Transportation.
6 Appendix A describes the Private Railroad Car Tax in more detail.
7 14 Cal. App. 4th 42.
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section 19 referred to the pipelines only, not to the underlying land or rights- of- way or to adjacent
lands and improvements. This holding was later codified in sections 401.10 and following. Each
county assessor, therefore, has jurisdiction to locally assess all lands and rights- of- way in his or
her county over or through which pipelines cross. The decision in Southern Pacific Pipe Lines,
Inc., however, did not address the other types of property enumerated in paragraph ( 1) of
section 19 of article XIII— that is, flumes, canals, ditches and aqueducts lying within two or more
counties— in this context.
TELEPHONE COMPANIES
Section 19 of article XIII mandates Board assessment jurisdiction concerning " property, except
franchises, owned or used by regulated … telephone companies.…" The term " regulated telephone
company," however, is not defined by the California Constitution, statutory provisions, or the
courts in the context of assessment jurisdiction.
As with other state assessees, the Board has interpreted section 19 of article XIII as requiring
Board jurisdiction of only telephone companies regulated as public utilities by the California
Public Utilities Commission ( CPUC) or by a comparable federal commission or board— for
example, the Common Carrier Bureau of the Federal Communications Commission ( FCC). The
Board has treated as " public utilities" telephone companies that have been granted a certificate of
public convenience and necessity from the CPUC or that have been classified as communications
common carriers by the Common Carrier Bureau under federal law. 8 The Board's practice has
been to assess the property of only those telephone companies that are regulated public utilities
under either state or federal law.
Long distance resellers and alternative operator services doing business in this state are generally
regulated by the CPUC; if they own or lease property in California, the property is subject to
Board assessment ( e. g., some resellers have their own switching systems in California). If they do
not own or lease facilities in California, however, they are not required to file a property statement
and the Board has no assessment jurisdiction over them. 9
Some telephone companies and resellers now use satellite transmission that replaces existing
wire, fiber, and cellular systems. The FCC is the only regulatory agency that issues permits ( i. e.,
licenses) for the operation of such companies; the CPUC has no regulatory authority. To the extent
that the companies own property in California, they are under the Board's assessment jurisdiction,
consistent with the Board's position that telephone companies are " regulated" if their permits or
operating rights are prescribed by either state or federal law.
8 See 29 Ops. Cal. Atty. Gen. 77; and 47 U. S. C. A. 201 and following.
9 Long distance resellers and alternative operator companies obtain a CPCN to offer telecommunication services
over the facilities of the local exchange carrier. The certificate grants resellers and alternative operator companies
the right to do business with a local exchange carrier at a discounted rate, which frequently enables them to offer
less expensive long- distance service. The CPUC grants certificates to such companies because the public interest
is served by promoting effective competition among telecommunications service suppliers. Whether or not
resellers actually lease or purchase the use of a switch or any of the facilities of the local exchange carrier is a
matter of agreement between the companies involved in each case.
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Also, some companies formerly operated for other purposes may begin telephone service and
thereby become subject to Board jurisdiction. For example, if a cable television company decides
to offer telephone services, and obtains authorization under state or federal law for this purpose,
all of the company's property then would be subject to the Board's assessment jurisdiction— the
company would meet the definition of a " regulated" telephone company. 10
Occasionally, in such a scenario, the telephone and the cable television operations might be
conducted by separate corporations or other legal entities. When companies subject to the Board's
assessment jurisdiction form new subsidiary or affiliate companies, wholly owned either directly
or indirectly by the parent company, the " separate legal entity" concept controls whether the
Board's assessment jurisdiction extends to the newly created entity. For example, if the newly
created entity is the subsidiary of a telephone company, but never obtains either a certificate of
public convenience and necessity from the CPUC, or becomes subject to regulation by the FCC as
a communications common carrier, then it will not come under the Board's assessment jurisdiction.
However, if it operates under the parent company's certificate or common carrier status ( or if it
acquires either one on its own), it is considered a " regulated" telephone company and will become
subject to the Board's jurisdiction.
INTEREXCHANGE AND COMMERCIAL MOBILE RADIO SERVICE
Similarly, interexchange and commercial mobile radio service companies are subject to the
Board's assessment jurisdiction only if they can be classified as " regulated telephone companies"
pursuant to section 19 of article XIII. 11
The FCC allocates radio frequencies, or channels, to both public and private radio carriers. Prior
to 1995 legislation and the FCC's resulting deregulation in 1996, the CPUC classified all public
radio carriers ( i. e., those authorized to provide service to the general public) as regulated radio
telephone utilities, and required a CPCN for their operations. In 1995, subdivision ( b)( 2) of
section 234 of the Public Utilities Code was amended to exclude " any one- way paging service
facilities that are licensed by the Federal Communications Commission" from CPUC regulation. 12
Two- way paging companies were specifically excepted from the amending legislation and the
10 An emerging issue in this regard is the regulatory classification of high speed Internet access services. In a
Notice of Inquiry involving cable modem service, the FCC noted, " Service providers are deploying a variety of
networks that rely on different network architectures and transmission paths, including copper wire, cable,
terrestrial wireless radio spectrum, satellite radio spectrum, or a combination of these and other media, to provide
high- speed services." ( Gen Docket No. 00- 185, " Inquiry Concerning High- Speed Access to the Internet Over
Cable and Other Facilities," par. 7). As regulatory issues concerning these services are resolved by the FCC,
there may be jurisdictional concerns for the Board to consider, to the extent that the FCC or the CPUC regulate
Internet access services as telephone services. For continuing developments on this subject, see www. fcc. gov.
11 A " commercial mobile service" is " any mobile service ... that is provided for profit and makes interconnected
communication service available ( a) to the public or ( a) to such classes of eligible users as to be effectively
available to a substantial portion of the public, as specified by regulation by the Commission." A " private mobile
service" is " any mobile service that is the functional equivalent of a commercial mobile service, as specified by
regulation by the Commission." An " interconnected service" is a " service that is interconnected with the public
switched network ( as such terms are defined by regulation by the Commission) or service for which a request for
interconnection is pending." ( 47 U. S. C. A. § 332, subdivision ( d).)
12 Chapter 357, Statutes of 1995 ( Assembly Bill 202).
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amended statute. Based on this change in state law, the Board determined that for the 1996 lien
date and thereafter one- way paging companies and narrow- band personal communications
services that are not otherwise subject to Board jurisdiction will be assessed by county assessors
because, statutorily, these companies are not " telephone companies."
Similarly, the Board has concluded that property used in the satellite transmission of voice
communications should be excluded from its assessment jurisdiction when the system is used for
television broadcast or other one- way transmission. In the Board's view, such systems do not meet
the constitutional definition of a regulated telephone company.
GAS AND ELECTRIC COMPANIES
Until 1996, property owned by all gas and electric companies was subject to Board assessment.
The only significant exception was electric cogeneration plants, which had historically been
locally assessed. In 1996, however, legislation restructured the electric industry in California,
excepting many companies that were and/ or would be generating and selling electricity from rate
regulation by the CPUC. 13
One of the main objectives of restructuring, or deregulation, was to achieve a more competitive
market for electric power by allowing new market entrants to purchase or build electric generation
plants and sell electricity to the public. This was accomplished, in part, by requiring existing
regulated companies with power generation and distribution facilities to sell power to a Power
Exchange, an entity that acts as a market facilitator for the purchase and sale of electric power and
that was created by the legislation.
To address the jurisdictional implications of electric industry restructuring, legislation enacted
section 721.5 and the Board adopted Rule 905.14 Section 721.5 and Rule 905 limit the Board's
assessment jurisdiction in regard to electric generation facilities. Rule 905 states:
( a) Commencing with the assessment for the lien date for the 2003 assessment year,
an electric generation facility shall be state assessed property for purposes of
article XIII, section 19 of the California Constitution if: ( 1) the facility has a
generating capacity of 50 megawatts or more; and ( 2) is owned or used by a
company which is an electrical corporation as defined in subdivisions ( a) and ( b)
of section 218 of the Public Utilities Code; or, the facility is owned or used by a
company which is a state assessee for reasons other than its ownership of the
electric generation facility or its ownership of pipelines, flumes, canals, ditches, or
aqueducts lying within two or more counties.
( b) " Electric generation facility" does not include a qualifying small power
production facility or a qualifying cogeneration facility within the meaning of
Sections 201 and 210 of Title II of the Public Utility Regulatory Policies Act of
1978 ( 16 U. S. C. § § 796( 17), ( 18) and 824a- 3) and the regulations adopted for those
13 Chapter 854, Statutes of 1996 ( Assembly Bill 1890).
14 All references to " rule" refer to a section in Title 18, Public Revenues, California Code of Regulations.
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sections under that act by the Federal Energy Regulatory Commission ( 18 C. F. R.
292.101- 292.602).
( c) For purposes of this section, " company" means:
( 1) A person as defined in Revenue and Taxation Code section 19;
( 2) A separate division or other functional unit of a business enterprise which is
created and maintained to operate any electric generation facility, where the
business enterprise is engaged in a primary business other than generating,
transmitting, distributing or selling electricity to the public.
( d) If an electric generation facility is operated by a separate division or other
functional unit of a business enterprise, as described in this rule, the business
enterprise must maintain accounting and other records sufficient to distinguish the
costs and revenues of the separate division or unit from other divisions and units of
the business enterprise.
( e) As adopted on September 1, 1999 and effective November 27, 1999, this rule
is applicable to define electric generation facilities subject to state assessment to
and including December 30, 2002. As amended on November 28, 2001, and filed
with the Secretary of State on May 14, 2002, this rule is applicable to define
electric generation facilities subject to state assessment as of December 31, 2002
and thereafter.
Section 721.5 was enacted and Rule 905 was amended to provide that electric generation facilities
shall be state- assessed property if the facility has a generating capacity of 50 megawatts or more
and the facility is owned or used by a company that is an electrical corporation as defined in
section 218 of the Public Utilities Code, or the facility is owned or used by a company which is a
state assessee for reasons other than its ownership of an electric generation facility or its
ownership of pipeline, flumes, canals, ditches, or aqueducts lying within two or more counties.
Further, section 721.5 and Rule 905 specifically exclude from state assessment electric generation
facilities that are qualifying small power production facilities or qualifying cogeneration facilities
within the meaning of sections 201 and 210 of Title II of the Public Utility Regulatory Policies Act
of 1978 ( 16 U. S. C. sections 796 ( 17), ( 18) and 824a- 3). The amended rule defines " company" to
include separate divisions or other functional units of a business enterprise which have been
created and maintained to operate any electric generation facility and to require the maintenance of
certain accounting records.
Some companies engaged in the transmission of gas are not regulated by the CPUC because they
are interstate natural gas pipeline companies that sell and deliver natural gas in interstate
commerce. These companies are, nevertheless, considered public utilities in that they deliver their
product to various locations in California under the exclusive authority and rate regulation of the
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Federal Energy Regulatory Commission. The Board's assessment jurisdiction also extends to this
category of gas company.
BOARD JURISDICTION INCLUDES UNITARY AND NONUNITARY PROPERTY
An important statutory distinction made in regard to property types assessed by the Board is that
found in sections 723 and 723.1, the distinction between unitary and nonunitary property. Unitary
property is property used in the primary function of an assessee; nonunitary property is property
owned by the assessee but not used in the assessee's primary function. The distinction between
unitary and nonunitary is discussed in more detail in a later chapter. For the purpose here, suffice it
to say that section 19 of article XIII requires the Board to assess property that is " owned or used"
by a state assessee. This means that both the unitary and nonunitary property of a state assessee is
subject to Board assessment. For example, a campground owned by a gas company, even though it
is not used in the company's utility operations, would still be assessed by the Board as the
assessee's nonunitary property.
STATE ASSESSMENT PROCESS
To provide an overview of the general process of state assessment, several major steps in the
process are described in roughly chronological order below. These steps also point to the subject
matter discussed in subsequent chapters. 15
1. The assessee files a property statement as required by section 826. Property statements
must be filed no later than March 1 of each year; but the Board may grant limited
extensions for specified parts of the property statement under section 830.1.
The Board prescribes several variations of the property statement, depending on the type of
property reported or the industry of the assessee. In general, however, the variations share
the following common elements: ( 1) a declaration of costs and other related property
information; ( 2) a tangible property list; ( 3) summary control accounts; ( 4) a statement of
land changes and land identification maps; ( 5) schedules of leased equipment; and ( 6) other
requested information.
2. The Valuation Division, a unit of the Board's Property and Special Taxes Department,
develops unitary valuation indicators and makes recommendations to the Board regarding
the value of the assessee's unitary property. State assessees are afforded an opportunity to
discuss the value of their unitary property at a public Board meeting held in May.
3. The Board determines the value of the assessee's unitary and nonunitary property. Unitary
value determinations are made and publicly announced no later than May 31. Nonunitary
value determinations are made and announced no later than the last day of June. ( Chapter 4
discusses value indicators.)
15 Appendix D is a calendar of important dates in the annual state assessment cycle.
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State Assessment Manual 11 March 2003
4. If a state assessee operates in more than one state, a portion of the value of the assessee's
unitary property is allocated by the Board to California ( interstate allocation). The portion
of the value of the assessee's unitary property allocated to California— or, the total value of
the assessee's unitary property if the assessee's operations are only in California— is
allocated by the Board among the counties in which the property is located ( intrastate
allocation). ( Chapter 5 discusses value allocation.)
5. For unitary and nonunitary values determined by the Board, the state assessee may file a
petition for reassessment. ( Chapter 6 discusses the appeals process for state assessments.)
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CHAPTER 2: STANDARD OF VALUE
In any appraisal, there are two primary conceptual issues that must first be addressed: ( 1) the
standard of value, or value concept, that is being sought and ( 2) the unit of property that is being
valued. This chapter discusses the first of these conceptual issues; the following chapter discusses
the second.
MARKET VALUE STANDARD
Section 1 of article XIII of the California Constitution states:
Unless otherwise provided by this Constitution or the laws of the United States.
( a) All property is taxable and shall be assessed at the same percentage of fair
market value. When a value standard other than fair market value is prescribed by
this Constitution or by statute authorized by this Constitution, the same percentage
shall be applied to determine the assessed value. The value to which the percentage
is applied, whether it be the fair market value or not, shall be known for property
tax purposes as the full value.
( b) All property so assessed shall be taxed in proportion to its full value.
Thus, the standard of value, or value concept, by which all state- assessed property is assessed is
" fair market value." 16 With the exception of restricted value property, whose value is statutorily
prescribed at a standard other than market value as recognized in the second sentence of
subdivision ( a) above, this is the same value standard applied to locally assessed property. 17
Section 110 describes the concept of market value. As provided in subdivision ( a):
Except as is otherwise provided in Section 110.1, " full cash value" or " fair market
value" means the amount of cash or its equivalent that property would bring if
exposed for sale in the open market under conditions in which neither buyer nor
seller could take advantage of the exigencies of the other, and both the buyer and
the seller have knowledge of all the uses and purposes to which the property is
adapted and for which it is capable of being used, and of the enforceable
restrictions upon those uses and purposes.
16 Prior to 1981, property was assessed at a percentage of fair market value; this percentage was called the
assessment ratio. Since 1981, property has been assessed at 100 percent of fair market value, an assessment ratio
of 1.0.
17 Several terms are used synonymously with " fair market value" in property tax statutes and regulations. These
include " full cash value," " cash value," " actual value," and " market value."
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Salient elements of the above definition include the following:
· Market value is measured in the " amount of cash or its equivalent." This means that the sale
price of the subject property or sales prices of comparable properties used as evidence of
market value should be stated in terms of cash.
· The property is " exposed for sale in the open market." This means that potential buyers are
aware that the property is for sale and have sufficient time and opportunity to present their
offers.
· Neither buyer nor seller " could take advantage of the exigencies of the other." This renders
buyer and seller as hypothetical persons dealing with each other at arm's length— that is,
neither is influenced by special motivations or particular circumstances.
· Buyer and seller " have knowledge of all the uses and purposes to which the property is
adapted." The value of property depends on its use. This passage means that buyer and
seller are aware of the highest and best use of the property, which is the lawful use that
maximizes the property's value, and consider the value of the property in light of such use.
In other words, buyer and seller are prudent, rational economic beings.
Subdivision ( b) of section 110 establishes a rebuttable presumption that " full cash value" or " fair
market value," as defined in subdivision ( a), is the actual purchase price if the terms were
negotiated under specified conditions reflecting an " open market transaction." Under
subdivision ( c), this rebuttable presumption does not apply when a taxpayer has failed to provide
certain information about the conditions of the transaction.
Subdivisions ( d), ( e), and ( f) of section 110 address the treatment of intangible assets and rights.
Subdivision ( d) provides that: ( 1) the value of intangible assets and rights relating to the going
concern value of a business using taxable property shall not enhance or be reflected in the value of
the taxable property; ( 2) if the principle of unit valuation is used to value properties that are
operated as a unit, then the fair market value of the taxable property contained within the unit shall
be determined by removing from the value of the unit the fair market value of the intangible assets
and rights contained within the unit; and ( 3) the exclusive nature of a concession, franchise, or
similar agreement is an intangible asset that shall not enhance the value of taxable property,
including real property. 18
However, in applying the above principles, the Legislature stated at the beginning of
subdivision ( d) that its provisions are expressly subject to the language in subdivision ( e).
Subdivision ( e) states: " Taxable property may be assessed and valued by assuming the presence of
intangible assets or rights necessary to put the property to beneficial or productive use."
Finally, subdivision ( f) of section 110 provides that for the purpose of determining " full cash
value" or " fair market value," any intangible attributes of real property shall be reflected in the
18 For additional discussion of the market value concept, see Assessors' Handbook Section 501, Basic Appraisal,
and Assessors' Handbook Section 502, Advanced Appraisal.
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State Assessment Manual 14 March 2003
value of the real property, and that these attributes include zoning, location, and other such
attributes that relate directly to the real property involved.
In any given market, the variables that determine supply and demand, and hence market value, are
subject to change— sometimes rapid change. An important consideration regarding market value,
therefore, is that it is something that exists as of a given point in time. It is, therefore, necessary to
specify a date of valuation in any consideration of market value. Accordingly, section 722
specifies that state- assessed property is valued as of 12: 01 a. m. on January 1, the lien date for
property tax purposes.
STATE- ASSESSED PROPERTY AND ARTICLE XIII A OF THE CALIFORNIA
CONSTITUTION19
In June 1978 California voters passed an initiative constitutional amendment that significantly
restructured California's property tax system. Proposition 13, which added article XIII A to the
California Constitution, contained four primary elements: ( 1) a limit on the ad valorem property
tax rate to 1 percent of the assessed value ( except in the case of pre- existing bonded indebtedness
or subsequent bonded indebtedness approved by a two- thirds vote); ( 2) a rollback of assessed
values to their 1975- 76 levels; ( 3) a limit on the annual growth in assessed value to a maximum of
2 percent per year, in the absence of a change in ownership or new construction; and
( 4) reassessment at current market value only upon a change in ownership or new construction.
In ITT World Communications, Inc. v. City and County of San Francisco, the California Supreme
Court ruled that article XIII A's assessment rollback, its 2 percent limit on annual assessment
growth, and its limit on current market value assessment only upon a change in ownership or new
construction did not apply to state- assessed property, only to locally assessed property. 20 As a
result, taxable property in California is now generally split into two major categories: locally
assessed property subject to the assessment limitations of article XIII A and state- assessed
property not subject to the assessment limitations of article XIII A.
In reaching its decision, the court presented the following major arguments. First, it held that
article XIII A, by its own terms, was limited to real property taxation, but that the " unit taxation" of
state- assessed property was not real property assessment in substance or form. Second, it held that
because article XIII A used the phrase " county assessor's valuation," again, by its own terms, the
article applied only to locally assessed property. Third, and finally, the court held that the phrase
" subject to taxation to the same extent and in the same manner as other property" from section 1 of
article XIII of the California Constitution did not impose a requirement of valuation on the same
basis between public utility and other property, but simply specified that state and local
assessments must be levied at the same tax rate.
19 Although not strictly about the " market value standard," this section relating to state assessed property and
article XIII A and the next section relating to the Railroad Revitalization and Regulatory Reform Act are included
here because both relate to the method of assessment for state assessed property.
20 ITT World Communications, Inc. v. City and County of San Francisco ( 1985) 37 Cal. 3d 859.
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RAILROAD REVITALIZATION AND REGULATORY REFORM ACT
Congress enacted the Federal Railroad Revitalization and Regulation Reform Act ( 4- R Act) in
1976. The general purpose of the Act, as stated in section 801 of Title 45 of the United States
Code, is
[ t] o provide the means to rehabilitate and maintain the physical facilities, improve
the operations and structure, and restore the financial stability of the railway system
of the United States.…
Another objective of the Act is to prohibit states from adopting tax structures that discriminate
against railroads. Specifically, section 11501 of Title 49 of the United States Code prohibits the
assessment of railroad property at a higher ratio to current market value than the analogous ratio
for commercial and industrial property generally. 21
The 4- R Act itself does not distinguish between the real and personal property of railroads. In
Trailer Train Co. v. State Board of Equalization, however, the court concluded that personal
property, specifically private railroad cars, is subject to the same assessment standards and
limitations as real property. 22 Thus, the same " effective tax rate" that is applied to commercial and
industrial property generally must be applied not only to all railroad property but also to private
railroad cars. In this context, effective tax rate means the assessment ratio multiplied by the actual
property tax rate.
To comply with the 4- R Act, the Board must ensure that all railroad property and private railroad
cars are assessed at the same percentage of ( or ratio to) current market value as other commercial
and industrial property. For example, if for commercial and industrial property the ratio of
assessed value to current market value is 83 percent, then the current market values of all railroad
property and private railroad cars must be multiplied by 83 percent to arrive at their taxable
values.
Board staff calculates the statewide ratio of assessed value to current market value for commercial
and industrial property in an annual assessment ratio study. In essence, the sum of the assessed
values of locally assessed land, non- fixture improvements, fixtures, and personalty and the
assessed value of all state- assessed property is divided by the corresponding sum of their
respective estimated current market values.
The resulting percentage is generally less than 100 percent because locally assessed real property
is assessed under the provisions of article XIII A of the California Constitution, which prescribes
a base year assessment method that often results in a taxable value lower than current market
value.
21 As defined in Trailer Train Company v. State Board of Equalization ( 1983) 697 F. 2d 860, commercial and
industrial property " means property, other than transportation property and land used primarily for agricultural
purposes or timber growing, devoted to a commercial or industrial use and subject to a property tax levy."
22 Trailer Train Co. v. State Board of Equalization ( 1983) 697 F. 2d 860.
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CHAPTER 3: VALUATION USING THE UNIT CONCEPT
APPRAISAL UNIT AND THE PRINCIPLE OF UNIT VALUATION
The second major conceptual problem that must be resolved in any appraisal is a determination of
the unit of property to be valued— that is, the property for which a market value estimate is sought.
This problem is not limited to the central assessment of public utility property; it appears in every
appraisal as the familiar question of the proper appraisal unit. When an appraiser decides on the
proper unit of property to be valued, he or she has determined to not add up the values of any
smaller units to arrive at the value of the unit.
In the context of the central assessment of public utility property, the problem of appraisal unit has
been analyzed using a concept called the " principle of unit valuation." Other terms used
synonymously include " unit valuation," " unit method," " unit concept," or " unit approach."
The principle of unit valuation holds, in essence, that a collection of tangible assets functioning as
an operating unit should be valued as a whole, without reference to the separate values of the
assets constituting the operating unit. A unit valuation is contrasted with a " summation valuation,"
in which the component parts of an operating unit are valued separately and summed to estimate
the value of the whole. Under the principle of unit valuation, the Board may recognize the entire
operating unit as the proper appraisal unit for certain property, thus recognizing the high degree of
functional and economic integration of such property.
Unit valuation has also been described as follows:
As its starting premise, the [ unitary valuation] concept assumes that it is
meaningless to consider the value of a mile of track, a substation, or a reel of cable
standing apart from the entire operating system. The unit value of the enterprise may
be either more or less than the total value of the individual assets making up the
whole. Presumably, if each asset were sold separately, the total price received
would be substantially less than the value of the enterprise as a going concern. This
becomes more apparent when it is considered that ten miles of underground cable
has a questionable worth, other than a minimal scrap value, if there is no generating
plant at one end to provide electricity and no source at the other end to receive
electrical energy. Similarly, fifty miles of railroad track, standing alone, are of
questionable utility without the rest of the system. 23
THEORETICAL BASIS
An examination of the theoretical rationale underlying the determination of the appraisal unit in
general also reveals the underpinning for the principle of unit valuation used in the valuation of
public utility property.
23 Louis G. Bertane, The Assessments of Public Utility Property in California, 20 UCLA L. Rev. 419.
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State Assessment Manual 17 March 2003
A market situation contains two primary attributes: a sale price and a unit of property that is sold.
Given the market value standard of property tax assessment, it is logical and theoretically
appropriate to think of the proper appraisal unit as a market unit. Indeed, for most types of
property, assuming a relatively active market, the proper appraisal unit, or unit to be valued, is
revealed by the market itself. The market provides the benchmark for determining the unit of
property to be valued. For example, in the market for single- family homes the unit traded is the
land and the improvement— the lot and the structure. The typical buyer or seller does not ascribe
separate values to the lot and the improvement and sum them; they sell together as a market- defined
unit. Further,
[ I] t would be meaningless to say that the buyer paid a certain percentage of the
total price for the house and the remainder for the lot, just as it would be
meaningless to say that the buyer paid a certain amount for the plumbing, a certain
amount for the wiring, a certain amount for the foundations and a certain amount for
the front door. The point is that the buyer bought the house and lot as a unit and
there is no logic to any further distinctions. [ Emphasis retained.] 24
The question remains, why do buyers and sellers of houses think in terms of the whole and not the
parts? The answer, which is the theoretical underpinning of the appraisal unit concept, is because
of the close functional relationship among the parts constituting the unit:
Why does the buyer [ and seller] of a house think in totals rather than fractions? The
answer is clearly that the roof has almost no value without the walls that support it,
the walls have almost no value without the foundations which support them, and the
foundations have almost no value without the land which supports them.… The
individual parts of this house and lot perform cooperative functions.… [ I] t is
equally true that the many operating parts of a complex railroad system, telephone
company or gas and electric enterprise perform cooperative functions. For the same
reason they must be valued as an entity rather than as a collection of pieces.
[ Emphasis retained.] 25
This single criterion of functional integration, however, is not adequate in and of itself. In a highly
integrated and interdependent economy it is difficult to establish absolute functional boundaries.
Functional integration must be combined with an obvious characteristic of the market situation—
ownership:
A sale represents a transfer of ownership and in normal circumstances the seller of
a piece of property cannot market the property unless he owns it.… [ T] he valuation
unit may not extend beyond the boundaries of the unit of ownership, if only because
24 California Legislature, 1953 Regular Session, Report of the Senate Interim Committee on State and Local
Taxation, Part Six, " Property Assessments and Equalization in California," ( Sacramento: California Legislature,
1953) 37. [ Hereafter " Senate Interim Committee Report."]
25 Senate Interim Committee Report, 38.
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State Assessment Manual 18 March 2003
the ownership unit determines the maximum unit of marketability and marketability
is an essential element in the concept of market value. 26
Thus, from a theoretical perspective, the principle of unit valuation holds that the unit of property
appropriate for the estimation of a market value should include all property items that are
functionally related and within common ownership.
LEGAL BASIS
Several court cases have addressed the unit valuation of public utility property. In Southern
California Telephone Company v. Los Angeles County, the court held that public utility property
must be valued " as a whole" in order to ensure the assessment of those values that " cling to the
entire property as a unit" and to ensure uniform assessment of public utility property.
[ T] he power to assess public utility property is placed exclusively in the hands of
the Board of Equalization as a sole, central assessing agency. This is significant,
because it is the common function of central assessing agencies to evaluate such
property as a whole in order to assure the assessment of those values which cling to
the entire property as a unit, and in order to assure the assessment of the same type
of property at uniform value throughout the state. These are the reasons for central
assessment of appellant's property as distinguished from local assessment thereof in
all of the fifty- eight different counties. 27
And in ITT World Communications, Inc. v. City and County of San Francisco ( 1985) 37 Cal. 3d.
859 ( also cited in GTE Sprint Communications Corp. v. County of Alameda ( 1994)
26 Cal. App. 4th 992):
One of the primary objectives of the system of unit taxation of public utility
property is to ascertain and reach with the taxing power the entire real value of
such property. [ Citations.] It has long been recognized that " public utility property
cannot be regarded as merely land, buildings, and other assets. Rather, its value
depends on the interrelation and operation of the entire utility as a unit. Many of the
separate assets would be practically valueless without the rest of the system. Ten
miles of telephone wire or one specially designed turbine engine would have a
questionable value, other than as scrap, without the benefit of the rest of the system
as a whole." [ Citation.] Unit taxation prevents real but intangible value from
escaping assessment and taxation by treating public utility property as a whole,
undifferentiated into separate assets ( land, buildings, vehicles, etc.) or even
separate kinds of assets ( realty or personalty).
The United States Supreme Court has also consistently upheld the legal validity of unit valuation
by central assessing authorities. The method has been challenged by taxpayers on several grounds,
26 Senate Interim Committee Report, 40.
27 Southern California Telephone Company v. Los Angeles County ( 1941) 45 Cal. App 2d. 111.
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State Assessment Manual 19 March 2003
including uniformity of taxation in regard to state versus local assessment; assessment of intangible
value; burden on interstate commerce; and assessment of extrastate property. Notable cases
addressing such matters include the following; State Railroad Tax Cases ( 1875) 92 U. S. 185;
Adams Express Co. v. Ohio State Auditor ( 1899) 166 U. S. 185; Cleveland, Cincinnati, Chicago
& St. Louis Railway v. Backus ( 1893) 154 U. S. 439; and Norfolk & Western Railway v. Missouri
State Tax Commission ( 1968) 390 U. S. 317.
Finally, section 723 authorizes the Board's use of the principle of unit valuation:
The board may use the principle of unit valuation in valuing properties of an
assessee that are operated as a unit in a primary function of the assessee. When so
valued, those properties are known as " unitary property." Property of an assessee
not valued through the use of the principle of unit valuation are [ sic] known as
" nonunitary property."
ADJUSTMENTS WHEN USING THE PRINCIPLE OF UNIT VALUATION
The next chapter discusses the approaches to value as they are applied in unit valuation. Noted
here, however, is that several adjustments may be required to the initial unitary value indicator
prior to arriving at the final unitary value indicator and the allocation of the unit value. These
adjustments can be divided into two general types. The first type is required to adjust the initial
value indicator so that it reflects only the value of the unitary property; the need for and nature of
this adjustment depends on the approach to value that is used. The second type is required to adjust
the unit value indicator so that it does not contain nontaxable property— either nontaxable tangible
property or intangible assets or rights.
CLASSIFICATION OF STATE- ASSESSED PROPERTY
In California, state- assessed property is classified into one of four categories: ( 1) unitary property,
( 2) nonunitary property, ( 3) operating nonunitary property, and ( 4) nonunitary rail transportation
property. Stated slightly differently, unitary property and three types of nonunitary property
constitute the classifications. Classification affects the way property is valued and, as explained in
Chapter 5, the way property value is allocated. 28
UNITARY PROPERTY
The general definition of unitary property is property owned or leased by the state assessee and
used in its primary operations as part of the state assessee's integrated system.
More specifically, within the general definition the following types of property are classified as
unitary: ( 1) special- purpose or industry- specific property that is leased by the state assessee;
( 2) property leased by a state assessee, used in the assessee's primary operations, and assessed to
28 Appendix C contains tables showing the Board's classification codes for various types of property.
Chapter 3
State Assessment Manual 20 March 2003
the assessee ( including taxable possessory interests); ( 3) property owned and held for future use in
the primary operations of the assessee if there is a documented plan for the property's future use
and the property is carried in a future use operating account; and ( 4) property that is owned and
used to protect and support other unitary property— due to locational or physical characteristics or
other factors. Under the principle of unit valuation, unitary property is valued as a single unit.
Examples of Unitary Property:
· Land, improvements, and personal property owned or leased by a state assessee and used in
its primary operation of transportation of freight by rail; gas or fluids by pipeline, canal or
ditch; generation, transmission or distribution of electricity; or transmission of information
by cellular, paging, or telephone.
· Vacant land that is considered necessary to protect areas utilized in the primary operations
of the assessee ( e. g., buffer areas required for nuclear power plants or gas storage
reservoirs, slide areas near railroad tracks, drainage ditches, etc.).
· Vacant land that is located in landlocked areas totally surrounded by sets of railroad tracks
or areas adjacent to rights- of- way that are too narrow to be developed to another use.
· Property that the state assessee had acquired for use in its primary operations but now has a
secondary use ( e. g., areas beneath tower lines which are farmed, used for parking or
storage; areas above gas storage reservoirs which are farmed).
· Railroad rights- of- way acquired by congressional grant or franchised by a governmental
agency.
· Utility and railroad easements for rights- of- way.
· Railroad property that is leased to agents of the railroad, who manage the property in a rail
transportation use ( e. g., intermodal container yards).
NONUNITARY PROPERTY
Nonunitary property is property that is owned by a state assessee but not used in the assessee's
primary operations. Nonunitary property is valued separately and apart from unitary property ( i. e.,
not valued as part of the unit).
Examples of nonunitary property:
· Property owned by and assessed to a state assessee, but leased to others.
· Property owned by a state assessee and not used in its primary operations.
· A railroad right- of- way that has had the track removed or has been abandoned ( includes the
land under the track that has been severed from the operating portion).
· Property used by others without a formal lease ( e. g., encroached upon and used for storage,
parking, or growing of trees, vines, or crops).
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State Assessment Manual 21 March 2003
OPERATING NONUNITARY PROPERTY
Operating nonunitary property is specifically defined in section 723.1:
Operating nonunitary properties are those that the assessee and its regulatory
agency consider to be operating as a unit, but the board considers not part of the
unit in the primary function of the assessee. This section does not apply to state-assessed
property of regulated railway companies….
Section 723.1 essentially provides discretion to the Board. The Board may classify property as
operating nonunitary that others classify as unitary. Operating nonunitary property is valued
separately and apart from unitary property ( i. e., not valued as part of the unit).
Example of operating nonunitary property:
· State assessee- owned property that is included in its rate base but is classified as nonunitary
( e. g., land on which a substation has been removed but it still is carried in the rate base) [ but
excludes railroad property.].
NONUNITARY RAIL TRANSPORTATION PROPERTY
Nonunitary rail transportation property is property owned by a railroad company that is used in
rail transportation operations, but is nonetheless valued separately and apart from unitary property
( i. e., not valued as part of the unit).
Examples of nonunitary rail transportation property:
· Railroad property leased to Amtrak, Caltrans, or transit districts.
· Railroad property leased to others, whose primary use of the property involves the receipt
and/ or shipping of products or raw material by rail ( e. g., lumber yards, liquid tank car
receivers, intermodal container yards, automobile loading- unloading facilities, etc.).
· Railroad property owned by and assessed to a state assessee, but leased to others whose
primary operation is that of freight transportation ( however, state assessee owned property
leased to others but not used for freight transportation is classified as nonunitary).
· Railroad land leased at a rent substantially below market ( e. g., an accommodation lease),
where freight or products are received or shipped frequently.
· Station grounds used for passenger parking ( e. g., Amtrak, Caltrans, Transit districts, etc.).
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CHAPTER 4: UNITARY VALUE INDICATORS
Value indicators are the evidences of market value prepared by the appraiser in support of the
final value conclusion. Each year, as prescribed in Rule 902, staff develops unitary value
indicators that are used by the Board in reaching its unitary value determinations. Staff also
recommends annual values for state assessees' other property located in California, that is,
nonunitary property, operating nonunitary property, and nonunitary rail transportation property.
Under Rule 3 there are five indicators of market value, or value approaches, one or more of which
must be considered in property tax valuation:
1. The price or prices at which the subject property or comparable properties have recently
sold ( the comparative sales approach).
2. The prices at which fractional equity interests in the subject property or comparable
properties have recently sold, and the extent to which such prices would have been
increased had there been no prior debt claims on the assets ( the stock and debt approach).
3. The cost of replacing reproducible property with new property of similar utility, or of
reproducing the property at its present site and at present price levels, less the extent to
which the value has been reduced by depreciation ( the replacement and reproduction cost
approaches, respectively).
4. If the income from the property is regulated by law and the regulatory agency uses
historical cost or historical cost less depreciation as a rate base, the amount invested in the
property or the amount invested less depreciation computed by the method employed by the
regulatory agency ( the historical cost approach).
5. The amount that investors would be willing to pay for the right to receive the income that
the property would be expected to yield, with the risks attendant upon its receipt ( the
income approach).
Related specifically to the valuation of unitary property, staff of the Board's Valuation Division
has recently developed and published Unitary Valuation Methods, a publication that describes the
valuation models ( i. e., valuation approaches) used by staff in its preparation of unitary value
indicators. In addition, as also prescribed in Rule 902, Valuation Division staff conducts and
publishes an annual capitalization rate study that develops capitalization rates used in the Board's
capitalized earnings ability model. 29
Descriptions of the valuation models contained in Unitary Valuation Methods and the methods of
capitalization rate derivation described in the annual capitalization rate study are not repeated in
this manual; instead, the reader is referred to those publications. The reader also is referred to
Assessors' Handbook Section 501, Basic Appraisal, and Section 502, Advanced Appraisal,
29 Both Unitary Valuation Methods and the annual capitalization rate study are available from the Board.
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State Assessment Manual 23 March 2003
publications containing discussions of general valuation principles and methods, much of which is
generally applicable to the valuation of public utility property.
Chapter 5
State Assessment Manual 24 March 2003
CHAPTER 5: ALLOCATION OF UNITARY VALUE
If the unit value contains the value of unitary property located outside California, a portion of the
multistate unit value first must be allocated to California. The allocation of unit value between or
among states is called interstate allocation. The unitary value indicators prepared for the Board by
staff are post- interstate allocation; that is, staff has already made any necessary interstate
allocations.
California's portion of the multistate unit value must also be allocated among the state's local tax
jurisdictions. The allocation of unit value within a state is called intrastate allocation. If all of a
state assessee's unitary property is located in California, obviously no interstate allocation is
required.
The values for all state- assessed property appear on what is called the " board roll." Under section
756, on or before each July 31, the Board must provide each county auditor with a roll showing the
values for all state- assessed property located in his or her county. The state assessments are
levied, and the corresponding property taxes collected, at the county level.
Unfortunately, no method of allocation can be theoretically satisfying from a valuation perspective
if one accepts the principle of unit valuation. The allocation of a unit value, which is an attempt to
obtain separate market values for the component parts of an operating unit, contradicts the
principle of unit valuation. If it is not possible to add up the separate values of the component parts
of an operating unit to determine the value of the unit— in essence, the principle of unit valuation as
it is applied to public utility property— then it is equally impossible to determine the separate
market values of the component parts by breaking up the value of the unit. Unit valuation is thus
logically inconsistent with any method of value allocation that purports to be according to market
value.
Theoretical problems aside, the need for inter- and intrastate allocation, and hence the need for an
allocation method, is based on clear legal requirements. First, under federal law California, like
all other states, has no authority to tax property located outside its boundaries. Second, section 14
of article XIII of the California Constitution requires that " All property … shall be assessed in the
county, city, and district in which it is situated."
The result is that allocated amounts, in both inter- and intrastate allocation, in a strict sense do not
represent market values; rather, they are portions of the unit value allocated in an equitable and
systematic manner to allow assessment and taxation by the appropriate legal jurisdiction.
The following sections describe, in general terms, the Board's procedures for the inter- and
intrastate allocation of a unit value. These procedures, although based on the same concepts, vary
by industry and by whether the allocation is inter- or intrastate. A concluding section also briefly
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State Assessment Manual 25 March 2003
describes the Board's tax- rate area system, the means by which all property in California is
assessed according to its situs. 30
INTERSTATE ALLOCATION
BASIS FOR INTERSTATE ALLOCATION
Both the National Association of Tax Administrators ( NATA) and the Western States Association
of Tax Administrators ( WSATA) have made recommendations regarding the interstate allocation
of unit value. In 1949, NATA, based on work by its Committee on Railroad Allocations, adopted
an allocation formula for railroads; and in 1960, WSATA, based on work by its Committee on
Allocation of Public Utilities, recommended allocation formulas for other types of utility property.
In general, the Board follows NATA's and WSATA's recommendations regarding interstate
allocation methods.
The Board considers several general principles in its allocation criteria. Largely derived from
NATA and WSATA, they include the following:
· Allocation percentages should not total more or less than 100 percent for all states.
· Allocation factors should reflect the quantity of property in each state.
· Allocation factors should be based on readily available, objective data.
· Allocation factors should not be based on data that are the result of a prior allocation.
· The resulting allocation should be " fair and equitable."
· The allocation method should consider administrative feasibility and convenience.
· As much as possible, the allocation should divide the unit value in proportion to the
contribution made by the unitary property in each state to the unit value ( despite the
theoretical difficulty related to this).
In practice, the interstate allocation of unit value is based on an allocation factor or, more
typically, a combination of allocation factors. An interstate allocation factor is intended to measure
the importance of a given variable in a state relative to its importance in the unit as a whole. For
example, if the variable is the historical cost of the property, the historical cost of the property in a
30 A few points about interstate allocation that are well known to those involved but perhaps not obvious to others:
( 1) Each state estimates its own unit value, and each state may define the unit slightly differently. Further, tax law
may vary between states as to what is or is not subject to ad valorem property tax. So, if a given assessee operates
in, say, three states, three unit values will be estimated. ( 2) Prior to the efforts of NATA and WSATA, there was
only limited agreement regarding allocation formulas. This meant that the total percentages allocated by the
respective states could sum to significantly more or less than 100 percent. This problem has been largely rectified.
( 3) There is an abundance of federal court cases concerning allocation of various types of interstate property. In
general, the federal courts will strike down allocation systems they deem unreasonable. Beyond that, the federal
courts have declined to interfere with a state's allocation system that is based on some reasonable relationship to
the rights and benefits of having the property located in the state. There is no federal requirement that the total of
all state assessments must equal ( or cannot exceed) 100 percent.
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State Assessment Manual 26 March 2003
given state is divided by the historical cost of all the property in the unit. The quotient is an
allocation factor based on historical cost. When the allocation factor is multiplied by the unit
value, the product is the state's portion of the unit value.
Often, two or more allocation factors, reflecting different allocation variables, are combined.
When factors are combined, weights are assigned to each factor. The result is a composite
factor— a weighted average of the individual factors— that is then used for allocation. Different
composite factors can be developed using different individual factors and different weightings.
The calculations required to arrive at a composite allocation factor are often called the " allocation
formula."
Individual allocation factors are generally based on property, use, or revenue variables. Property
factors are based on the visible, physical assets in the unit, such as cost ( original, or historical;
reproduction; or replacement), wire- miles, pole- miles, track- miles, distribution mains, etc. Use
factors are based on some type of physical activity that takes place, such as car- days, car- or
locomotive- miles, ton- or passenger- miles, barrel- miles, MCF- miles ( MCF = thousand cubic
feet), originating- or terminating- tons, and kilowatt hours- sold or kilowatt hours- generated.
Revenue factors represent some measure of earnings, such as gross revenue and net operating
income. Revenue factors are sometimes interpreted as measures of " economic use" and are
considered as part of the use category.
The specific procedures used in interstate allocation vary by industry, but the methods are similar.
The Board's procedures for the interstate allocation of unit values are described briefly below, by
industry group.
INTERSTATE ALLOCATION PROCEDURES
Electric
Electric utility companies often have unitary property used for the generation, sale, transmission,
and distribution of electricity— or a combination of these operations— in more than one state. For
the interstate allocation of an electric company's unit value, the Board follows WSATA's interstate
allocation formula for electric utilities.
The WSATA formula allocates unit value on the basis of historical cost modified by other
allocation factors. Separate allocations are made according to defined operating segments: electric
production property, electric distribution property, and remainder of property. Allocation factors
and factor weightings used for the three defined operating segments are as follows:
· Electric production property: 75 percent historical cost; 10 percent kilowatt capacity; and 15 percent
kilowatt hours generated.
· Electric distribution property: 50 percent historical cost; 10 percent kilowatt- hours delivered and sold;
and 40 percent for revenues from these kilowatt- hours.
· Remainder of property: 100 percent historical cost.
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State Assessment Manual 27 March 2003
Thus, the value of the electric production segment is allocated using a composite allocation factor
composed of three individual allocation factors— historical cost, kilowatt capacity, and kilowatt
hours generated; the value of the electric distribution segment is allocated using a composite
allocation factor composed of three individual allocation factors— historical cost, kilowatt hours
delivered and sold, and revenue; and the value of the remainder of the property is allocated using a
single allocation factor— historical cost.
These three factors are then multiplied by allocated percentages of the unit value for each
operating segment; this percentage allocation is based on the historical cost of the property in each
segment. The sum of these three products is the final allocation factor for California; when this
factor is multiplied by the entire unit value, the result is the portion of the unit value assessed in
California.
Telecommunication
A telephone company differs from other utility companies because of the structure of the telephone
industry. Typically, a telephone company can only operate, or operate most efficiently, when
connected to other telecommunications systems. There is a high degree of system interdependence.
Telephone companies can be classified into three types: local exchange, interexchange, and
wireless. Local exchange companies provide services in a defined geographic area, usually within
a single state. In the case of multistate local exchange companies operating in California, the
geographic area served, amount of property, and revenues in California generally are very limited.
Nonetheless, in such cases, the interstate allocation of the unit value is still required. Typically, the
Board makes this allocation using a single allocation factor based on historical cost.
Interexchange companies provide telephone services from one local exchange to another local
exchange. Often, an interexchange company provides services in more than one state. The Board's
interstate allocation of the unit value of an interexchange company is also made using a single
allocation factor based on historical cost.
A wireless telephone company provides mobile telecommunication services through its own
facilities, facilities owned by other wireless companies, and facilities owned by local and
interexchange companies. Wireless companies own or lease sites, towers, and antennas in
numerous counties throughout the state and may own or lease property in other states. For wireless
companies, the Board makes its interstate allocation of unit value using an allocation factor based
on gross revenue.
Pipeline
Pipeline companies own property used in the distribution of oil, natural gas, and other products in
a liquid state; their operations are frequently interstate. The property involved can be divided into
two categories: the pipeline itself and " other property," which includes buildings, gathering
systems, pumping stations, materials and supplies, and other assets that are not part of the pipeline
itself but are used in the pipeline company's operations.
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State Assessment Manual 28 March 2003
With pipeline companies, it is practically impossible to arrive at earnings estimates that can be
ascribed to property on a state- by- state basis. Barrel- miles or MCF- miles are reasonable
substitutes for earnings. Other appropriate allocation factors are those based on original or
historical cost and originating and terminating barrels or MCF.
The Board typically uses a slightly modified form of the WSATA recommended allocation formula
that includes the historical or original cost of pipeline and other property, barrel- or MCF- miles,
and originating and terminating barrels or MCP as allocation factors, weighted as follows:
· Historical or original cost: 75 percent
· Barrel- or MCF- miles: 20 percent
· Originating and terminating barrels or MCF: 5 percent
When originating and terminating barrels or MCF data are not available, Board practice has been
to modify the above formula by giving a 75 percent weighting to historical or original cost and a
25 percent weighting to barrel- or MCF- miles.
Railroad
For the interstate allocation of railroad unit value, the Board uses a modified version of the NATA
formula. The modifications:
· Undepreciated cost is used because cost data are readily available and estimates of
depreciation are not necessary.
· Rolling stock and other mobile equipment costs are excluded because they are based on
allocations.
· Miles of way and yards of tracks are included to reflect terminal activity in California.
· Fixed weightings are assigned to the property, line haul, and terminal factors because the
Surface Transportation Board ( formerly, the Interstate Commerce Commission) no longer
provides the expense data necessary to calculate weights.
The Board uses a composite allocation factor to allocate railroad unit value. The individual
allocation factors and their weightings in the composite factor are as follows:
· Cost ( Surface Transportation Board form R- 1), a property factor: 40 percent.
· Revenue ton- miles, a line- haul factor: 45 percent.
· Sum of tons of originating and terminating freight, tons received and delivered, and miles of
yard and way switching track, a terminal factor: 15 percent.
The Board uses data from the Surface Transportation Board to calculate the individual allocation
factors.
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State Assessment Manual 29 March 2003
INTRASTATE ALLOCATION
BASIS FOR INTRASTATE ALLOCATION
Except for railroad property and property subject to subdivisions ( i) and ( j) of section 100, both of
which are discussed in sections below, the intrastate allocation of unit value is to the county level
only; the county auditor is responsible for further allocation of this value among the county's local
tax jurisdictions. As stated in section 745:
" The assessment of the unitary and operating nonunitary property of an assessee
shall be allocated … among the counties in which parts of the unitary and operating
nonunitary property are situated." 31
Section 745 provides broad discretion to the Board regarding the method of allocation. The
Board's primary objective is to use an allocation method resulting in an allocation of value to each
county that is a reasonable estimate of the allocated part's proportionate value contribution to the
intrastate unit value. In other words, the objective is for an allocation to each county that is as
closely related as possible to the value of each assessee's unitary property in the county. Excluding
the exceptions discussed below, intrastate allocation procedures, unlike interstate procedures, do
not vary significantly by industry.
INTRASTATE ALLOCATION PROCEDURES32
Unitary Land
Board appraisers estimate the market values of each state assessee's unitary land parcels for each
lien date, using generally accepted appraisal methods. The total unitary land value for each state
assessee is the sum of the values of the assessee's unitary land parcels. This total unitary land
value is allocated to each county based on situs ( i. e., to each county's general countywide tax- rate
area).
Unitary Property Other Than Land
The value of each assessee's unitary property other than land remains to be allocated. For each
assessee, this amount is the assessee's total unit value less the value of the assessee's unitary land
as determined in the section above. This is often called the " net unit value." The allocation of net
unit value to each county is further segregated into improvements and personal property.
For the property of the seven largest state assessees and for all pipeline property, the intrastate
value allocation of the net unit value is based on reproduction cost new less depreciation
( ReproCNLD). The allocation factor for a given assessee's property in a given county is the ratio
between current ReproCNLD of the assessee's property in that county to current ReproCNLD of
the assessee's net unit value.
31 The county auditor's intracounty allocation of unitary value among the myriad local tax jurisdictions must follow
the formula prescribed in section 100.
32 Again, the discussion in this section excludes railroad property and property subject to subdivisions ( i) and ( j) of
section 100.
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State Assessment Manual 30 March 2003
For the remaining state assessees, those other than the seven largest, the allocation method is
analogous, but the intrastate allocation factor is based on historical cost rather than ReproCNLD. 33
Unitary property other than land includes property that is identifiable by location— buildings,
substations, equipment, furniture, etc. For each property item, the assessee reports the original cost
by acquisition year, and the location by general countywide tax- rate area ( i. e., to the county level).
Also included in unitary property other than land are gas transmission and distribution mains,
electrical transmission and distribution lines, telephone wires and cables, canals, pipelines, etc.,
all examples of a type of unitary property called " continuous structures." For intrastate allocation,
the Board treats continuous structures in the same manner as property identifiable by location. For
each portion or segment of a continuous structure, the assessee reports its original cost by
acquisition year and its location by general countywide tax- rate area ( or, if not so reported, Board
staff will allocate the " continuous structures" by county).
Intrastate Allocation Summary
The guiding principle of intrastate allocation is location, or situs, with value allocated to situs
using allocation factors based on either ReproCNLD or historical cost. Here is a two- step
summary:
1. Board staff estimates an assessee's unitary land value and allocates this value by location
to each general countywide tax- rate area. The value of unitary property other than land, the
" net unit value," remains to be allocated. For each assessee, this is the assessee's total unit
value less the assessee's total unitary land value. 34
2. For the seven largest state assessees and all pipeline assessees, the value remaining, the
net unit value, is allocated to the county level using an allocation factor based on
ReproCNLD. For all other assessees, the remaining unit value is allocated to the county
level using an allocation factor based on historical cost. Allocated values are
differentiated by " improvements" and " personal property." The sum of the allocated values
for each county equals 100 percent of the Board- adopted unitary value.
EXCEPTIONS TO GENERAL INTRASTATE ALLOCATION METHOD
Section 100.9
Section 100.9, effective beginning with the 2003- 2004 fiscal year, requires that the assessed value
of electric generation facilities assessed by the Board pursuant to section 721.5 must be allocated
exclusively to the county in which the facility is located and that the revenues derived from the
assessment of this property must be allocated in the same percentage shares as revenues derived
33 We have eliminated one slight complication. " Fuel" and " materials and supplies" are typically directly deducted
from the assessee's total unit value and allocated to each county by situs based on their full reported cost. The " net
unit value" referred to above is thus actually the total California unit value less the value of unitary land and
deducted fuel, and materials and supplies. The amount of fuel, materials and supplies is generally not significant
relative to the total allocated value.
34 Intercounty pipeline land and rights of way, however, are locally assessed.
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State Assessment Manual 31 March 2003
from locally assessed property among the jurisdictions in which the property is located. Section
100.9 states:
( a) Notwithstanding any other provision of law and except as provided in
subdivision ( b), for the 2003- 04 fiscal year and each fiscal year thereafter, all of
the following apply:
( 1) The property tax assessed value of an electric generation facility that is
assessed by the State Board of Equalization shall be allocated entirely to the county
in which the facility is located, and shall be allocated to that tax rate area in the
county in which the property is located.
( 2) The tax rate applied to the assessed value allocated pursuant to paragraph ( 1)
shall be the rate calculated pursuant to Section 93.
( 3) The revenues derived from the application of the tax rate to the assessed value
allocated to a tax rate area pursuant to paragraph ( 1) shall be allocated among the
jurisdictions in that tax rate area, in those same percentage shares that property tax
revenues derived from locally assessed property are allocated to those
jurisdictions in that tax rate area, subject to any allocation and payment of funds as
provided in subdivision ( b) of Section 33670 of the Health and Safety Code, and
subject to any modifications or adjustments pursuant to Sections 99 and 99.2.
( b) Subdivision ( a) does not apply to the assessed value or the revenues derived
from that assessed value from either of the following:
( 1) An electric generation facility that was constructed pursuant to a certificate of
public convenience and necessity issued by the California Public Utilities
Commission to the company that presently owns the facility.
( 2) An electric generation facility that is owned by a company that is a state
assessee for reasons other than its ownership of the generation facility or its
ownership of pipelines, flumes, canals, ditches, or aqueducts lying within two or
more counties.
Railroad Property
Railroads are an exception to the general intrastate allocation method based on ReproCNLD or
historical cost. Section 100.1 governs the intrastate allocation of the value of the property of
regulated railway companies. The unit values of railroad company property, unlike the unit values
of other public utility property, are allocated to specific county tax- rate areas, not to the general,
countywide tax- rate area. Also, the unit values of railroads are allocated based on estimated
weighted track mileage in each tax- rate area, using a 1987 base year. Track mileage is weighted to
reflect the relative importance of track type ( e. g., mainline, branch, and other track). Further
allocation among land, improvements, and personal property is also proportional to values from
the 1987 base year.
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State Assessment Manual 32 March 2003
Other Property Allocated to Specific Tax- Rate Area
Another exception to the general intrastate allocation method described above is property
specifically described in subdivisions ( i) and ( j) of section 100 ( sometimes called " Hannigan
property," after the legislator). These subdivisions pertain to property that is undeveloped, owned
by a public utility, and located within a city, county, or city and county that has adopted a
resolution making the property subject to a development plan or agreement. A copy of the
resolution also must have been transmitted to the Board before specified dates. The value of this
property also must be allocated by specific tax- rate area rather than general countywide tax- rate
area.
State assessees report such property's historical, or original, cost by acquisition year and its
location by specific local tax- rate area. The value of this property is directly allocated to the
specific tax- rate area within which the property is located, using an allocation factor based on
historical cost. As described earlier, the value of all other unitary property in a county is allocated
only to the countywide tax- rate area.
STATE- ASSESSED PROPERTY NOT SUBJECT TO UNITARY ALLOCATION
The preceding sections described how the value of unitary property was allocated to the board roll
and hence, eventually, to each local assessment roll. The remaining discussion focuses on how the
rest of state- assessed property— that is, nonunitary property, operating nonunitary property, and
nonunitary rail transportation property— is assessed and enrolled.
Nonunitary property is valued separately from the unit and its value is enrolled to the board roll by
specific county tax- rate area. The value of nonunitary property is not subject to the intracounty
allocation performed by county auditors under section 100.
Operating nonunitary property is valued separately from the unit but enrolled to each county's
general countywide tax- rate area by situs ( actually to a special, countywide tax- rate area reserved
for it). Operating nonunitary property is subject to the intracounty allocation performed by county
auditors. So, it receives a hybrid treatment ( i. e., separately valued, but with value allocated).
Nonunitary rail transportation property is valued separately from the unit and its value is enrolled
to the Board roll by specific tax- rate area. The value of nonunitary rail transportation property is
not subject to the intracounty allocation performed by county auditors under section 100. The value
of this type of property receives the assessment ratio treatment described in an earlier section
relating to the Railroad Revitalization and Regulation Reform Act ( 4- R Act). Excluding this
treatment under the 4- R Act, nonunitary rail transportation property is treated exactly as nonunitary
property.
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State Assessment Manual 33 March 2003
BOARD'S TAX- RATE AREA SYSTEM
The Board's tax- rate area system facilitates compliance with the constitutional requirement that all
taxable property be assessed according to situs. The tax- rate area system assigns a unique tax- rate
area number to every geographical area in the state that corresponds to a unique combination of
overlapping tax levies made by local revenue districts ( e. g. cities, school districts, special
districts). A general, countywide tax- rate area number is also part of the system.
A tax- rate area number contains six digits. The first three digits refer to primary areas and the
second three digits to secondary areas. The primary- area digits identify incorporated cities and
school districts in unincorporated areas of a county. The secondary- area digits identify all other
revenue districts within a given primary- area digits sequence. Since the geographic boundaries of
these districts do not conform to those of the primary area numbers, subdivisions within the
primary areas were created and numbered in ascending order beginning with " 001." 35
State- assessed property is identified by " 000" in the primary- area digits of the tax- rate area
number; unitary and operating nonunitary property are identified by " 001" in the secondary- area
digits. State assessees generally report their unitary property by countywide tax- rate areas. The
Board then assesses the unitary property to the respective countywide tax- rate areas ( except for
railroad property and property subject to subdivisions ( i) and ( j) of section 100) and delivers the
portion of the Board roll pertaining to each county to the respective county auditor. As discussed
above, nonunitary property and nonunitary rail transportation property are identified to the level of
specific county tax- rate area. 36
35 Los Angeles County maintains its own five- digit numbering system, which does not completely differentiate
cities from other districts.
36 The Board's tax- rate area system is described in slightly greater detail in Assessors' Handbook Section 215,
Assessment Map Standards.
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State Assessment Manual 34 March 2003
CHAPTER 6: APPEALS OF STATE ASSESSMENTS
This chapter discusses appeals of state assessments. Under sections 731 and following, a state
assessee or its designated representative may request a review of ( 1) the value of its unitary and/ or
nonunitary property and any related penalty assessments; ( 2) the allocation of the unit value of its
unitary property among counties; and ( 3) the results of a Board audit resulting in escape
assessments. The Board sits as the administrative appeals body for state assessments. 37
This chapter begins with a brief discussion of the valuation process as it relates to appeals of state
assessments. This is followed by a discussion of the appeals process, including petitions for filing
an appeal, conduct of Board hearings, and further appeal rights of state assessees. 38 A brief
discussion of the audit review process and escape assessments resulting from an audit concludes
the chapter.
VALUATION PROCESS
Each year, the Board's Valuation Division prepares value indicators for state- assessed property as
of the January 1 lien date in that year, and submits its value indicators and value recommendations
to the Board. For unitary property, values are established by the Board at public hearings in May.
For nonunitary property, values are established by the Board at public hearings in June.
As discussed in Chapter 5, the Board allocates the unit value of a state assessee's unitary property
and assigns the value of its operating nonunitary property to each county in which such property is
physically located. All other state- assessed property is assessed directly to the specific county tax-rate
area in which the property is physically located. All assessments made by the Board appear
on an annual Board- prepared assessment roll— the Board roll— that is sent to county auditors.
Assessee Review and Comment
Prior to the Board's annual valuation, a state assessee may review the staff's annual capitalization
rate study and its work papers related to value indicators for unitary property.
The Board also provides a state assessee with the opportunity to make a presentation to the Board,
either in person or in writing, regarding capitalization rates and other matters affecting the Board's
valuation of its property. The Board holds public meetings in February and May for these
purposes.
37 The Board also hears property tax appeals concerning assessments of taxable property owned by local
governments outside their boundaries ( section 11 property) and claims for the welfare exemption that have been
denied by Board staff.
38 The procedures and deadlines referenced in this text reflect all statutory amendments made under Stats. 2000,
Chap. 647 ( Senate Bill 2170), effective on January 1, 2001, to Revenue and Taxation Code sections 731, 732,
733, 746, 748, 749, 758 and 759.
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State Assessment Manual 35 March 2003
Notification of Value
After the Board establishes annual values for all state- assessed property, all state assessees are
sent notices of assessment that also provide information on the procedure for appealing
assessments.
Notices of assessment are mailed by June 1 for unitary property and by the last day of July for
nonunitary property. A property's assessed value becomes final after July 20 and September 20 of
the same calendar year in which the notice is provided for unitary and nonunitary property
respectively, unless the assessee files a petition for reassessment.
After receiving the notice of assessment, a state assessee may obtain, by written request, a copy of
the appropriate staff capitalization rate study and the final calculations of value indicators relevant
to the property to which the notice pertains. If requested, this information must be provided to the
assessee prior to the deadline for filing a petition for reassessment.
Tax Payment
Tax is payable to the appropriate county or counties in two installments on November 1 ( payment
deadline December 10) and February 1 ( payment deadline April 10).
APPEALS PROCESS – ASSESSMENTS AND PENALTIES
The appeals process is the same for both unitary and nonunitary properties, unless noted
otherwise. The four basic steps in the appeal of a value established by the Board are as follows:
1. File a petition for reassessment, a petition for reassessment and claim for refund, a petition
for correction of an allocated assessment, or a petition for penalty abatement with the
Board.
2. Submit the matter for hearing by the Board ( if the assessee does not request an oral hearing,
the Board will base its decision on the contents of the written petition and the written
recommendation made by the Board's staff).
3. File a claim for refund with the county, if not previously filed with the Board ( taxes must
be paid to county or counties).
4. File an action in superior court ( if claim for refund is denied).
Although the appeals process generally proceeds step- by- step, some steps may be combined or
skipped, as explained in the following section.
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State Assessment Manual 36 March 2003
PETITION FOR REASSESSMENT, PENALTY ABATEMENT, OR CORRECTION OF
ALLOCATED ASSESSMENT
Petition for Reassessment or Petition for Penalty Abatement
For unitary property, a petition for reassessment may be filed no later than July 20. For nonunitary
property, a petition for reassessment may be filed no later than September 20. For escape
assessments, the date for filing a petition for reassessment shall not be less than 50 days from the
date of mailing of the notice of value.
The petition for reassessment or the petition for penalty abatement must be in writing. The petition
for reassessment must state:
· The name of the property owner;
· The assessee's opinion of the property's value; and
· The precise elements of the Board's valuation being contested. 39
The petition for penalty abatement must present facts establishing that:
· There was a reasonable cause for the inaccurate or delayed filing;
· The problem occurred despite best efforts to file an accurate and/ or timely statement; and
· The assessee did not intentionally neglect its filing obligations.
If the assessee wants to make an oral presentation before the Board, the request must be included
in the petition. Otherwise, the Board will consider the merits of the written petition and the Board
staff's written recommendation and make its decision at a public meeting ( nonappearance agenda).
The petition may serve as a claim for refund of taxes to be paid on the assessment that is the
subject of the petition. If the petition serves as a claim for refund, it should state this clearly.
The Board hears petitions for reassessment of unitary and nonunitary values or penalty abatement
between the date a timely petition is received and December 31 of the same year. The Board must
reach a decision on such petitions no later than December 31.
Petition for Correction of Allocated Assessment
No later than June 15, the Board must send each assessee a written notice of the allocated assessed
values of the assessee's unitary property. An assessee may appeal the value allocation of its
unitary property by filing a petition for correction of an allocated assessment. The deadline for
filing a petition for correction of an allocated assessment is July 20. In the petition, the assessee
must state the specific reasons on which the claim for correction or adjustment of the allocation is
grounded. Under a petition for correction of an allocated assessment, the assessee may not contest
39 Appraisal reports, financial studies, and other materials relevant to value must be included and submitted with the
petition for both reassessment and for penalty abatement.
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State Assessment Manual 37 March 2003
the total value of its unitary property; only the allocation of the unit value may be contested. The
petition may serve as a claim for refund of taxes to be paid on the assessment that is the subject of
the petition. If the petition serves as a claim for refund, it should state this clearly. 40
BOARD HEARING
The Board hearing gives the assessee the opportunity to summarize and emphasize the points
supporting its position. An assessee may present any relevant evidence, provided it is the sort of
evidence generally relied upon by responsible persons in establishing value for similar properties.
At the hearing, the Board will generally consider only the values, issues, or precise elements set
forth in the petition. However, the Members may inquire into relevant new matters and give the
assessee or the Board staff an opportunity to respond.
Burden of Proof
Ordinarily the assessee has the burden of proof regarding any disputed facts. In a hearing on a
petition for abatement of a penalty for failure to file an accurate and/ or timely property statement,
under section 830 the assessee must establish to the Board's satisfaction that:
· There was reasonable cause for the inaccurate or delayed filing;
· The problem occurred despite best efforts to file an accurate and/ or timely statement; and
· Filing obligations were not intentionally neglected.
In a hearing on a petition for abatement of other penalties, however, Board staff bears the burden
of proof.
Conduct of the Hearing
A Board hearing generally consists of the assessee's unsworn presentation, presentations by Board
staff ( usually an appraiser and an attorney), and, if necessary, testimony by witnesses. If the
assessee requests, the Board will conduct a formal evidentiary hearing in which witnesses testify
under oath or affirmation.
A hearing usually proceeds as follows:
1. A Board staff attorney introduces the case by summarizing the facts, applicable law, and
issues involved. If an assessment is at issue, the attorney will offer into evidence the
Board's determinations of value. Following this introduction, the staff attorney will
introduce the assessee or the assessee's representative.
40 Under sections 5096 through 5097.2, a claim for refund of taxes paid more than once or erroneously or
illegally collected or levied must be made in writing, specifying the grounds on which the claim is founded, and
must be filed within four years after making the payment sought to be refunded, or within one year after the
mailing of the tax collector's notice of overpayment, whichever is later.
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2. In a case in which the assessee bears the burden of proof, the assessee or the assessee's
representative states its position regarding the facts and applicable law and presents its
evidence.
3. After the assessee's presentation, the Board staff attorney presents arguments based on the
staff's evidence and responds to the assessee's arguments.
4. The assessee is given the opportunity to reply to the Board staff presentation.
5. If a witness is called, the assessee or the assessee's representative may ask questions of the
witness without interruption, as long as the testimony is competent and relevant. When the
assessee completes the examination of the witness, a Board Member ( or, at the discretion
of the Board Chair, the Board staff attorney), may examine the witness.
6. Finally, the Board Members may ask each party questions about the petition, the facts, or
the law.
Admission of Evidence
For evidence, such as appraisal reports, financial studies, and other materials relevant to the value
of the property, to be admitted, Board rules require that it be submitted to the Board with the
petition.
The Board is not bound by the formal rules of evidence used in court. Board Members may admit
all relevant evidence, including affidavits or hearsay, if it is the sort of evidence responsible
persons rely upon in the conduct of serious affairs. While the Board follows a liberal standard for
admission of evidence, the Board may exercise discretion when determining what weight to assign
to evidence, considering any objections to its admission and/ or comments on its weakness. The
Board my refuse to admit evidence that it considers irrelevant, untrustworthy, or too repetitive.
Board Determination
All Board determinations are made at public hearings. If an oral hearing is held, the Board may
take one of the following actions:
· Order the matter to be taken under submission;
· Decide the matter at the conclusion of the hearing day; or
· Order the matter to be taken under submission, and allow the assessee and/ or the Board
staff more time to submit specific information.
Generally, petitions taken under submission by the Board, and those for which oral hearing has
been waived, are put on a nonappearance agenda and voted on during a regularly scheduled Board
meeting. If the petition is on the nonappearance agenda, the assessee normally will not be informed
of the date of the Board meeting at which the matter will appear on the agenda.
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When a decision is reached, the Board sends a written notice of decision, and, if requested in the
petition, written findings and decision. The Board's decision is final. A petition will not be
reconsidered or reheard.
FILING A CLAIM FOR REFUND
An assessee may file a claim for refund of tax to be paid or paid on a contested assessment or
allocation. There are two different procedures, depending on whether the petition itself is intended
to serve as a claim for refund.
Claim for Refund Made With Original Petition
As discussed above, the petition may also serve as a claim for refund, provided that the petition so
states. If the Board denies the petition and, hence, the claim, then upon payment of tax to the county
or counties, the assessee may proceed directly to file an action in superior court for a refund of the
tax.
Subsequent Claim for Refund
If the Board denies a petition that does not also serve as a claim for refund, after the assessee has
paid the tax, the assessee may file a written claim for refund with the county or counties where the
property is located. The claim must be filed:
· Within four years from the date of payment of the tax; or
· Within one year from the mailing date of a notice or overpayment, whichever is later.
The claim for refund must state all of the reasons the assessee believes the assessment or
allocation is incorrect. The county board of supervisors will consider the claim and mail its
decision to the assessee. If the county rejects all or part of the claim for refund, or does not send a
decision notice within six months of the date of the claim is filed, the assessee may proceed to file
an action in superior court for a refund of the tax.
FILING AN ACTION IN SUPERIOR COURT
After the Board or the county has rejected a claim for refund ( or has not sent a decision notice
within six months of claim filing), the assessee has exhausted its administrative remedies and may
bring an action in superior court for refund of the tax.
Board- Denied Claims
After the Board has denied a petition that also constitutes a claim for refund, and the assessee has
paid the tax, the action must be filed within four years of:
· The mailing of the Board's written decision on the petition; or
· The mailing date of the Board's written findings and conclusion on the petition, whichever
is later.
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County- Denied Claims
The action must be filed within six months from the date of the county board of supervisors' notice
of action on the claim. If the county does not send a decision notice within six months of the date
the claim is filed, the assessee may consider the claim denied and file an action in superior court.
AUDIT REVIEW AND ESCAPE ASSESSMENTS
AUDIT CONFERENCE
The Board periodically audits the records of state assessees to review information relating to the
value of their property. If a disagreement over an audit conclusion arises during an audit, an
assessee may attempt to resolve the dispute through discussion with the Board auditor and/ or
through the provision of more information in support of the assessee's position.
After the audit, Valuation Division staff mail a copy of the preliminary audit report, and, if
requested, copies of the audit work papers to the assessee. If the assessee disagrees with the
conclusions of the report, he or she may request a meeting with the auditor and the auditor's
supervisor. If, after discussion, the Board auditor is persuaded that any aspect of the audit is
incorrect, he or she may revise the audit findings accordingly.
Following the meeting with the auditor and the auditor's supervisor, the Board mails the assessee a
revised audit report setting forth any unresolved matters. Accompanying the revised report is a
notice advising that the assessee has 30 days in which to present any new information or evidence
to support the assessee's position.
ESCAPE ASSESSMENT APPEALS
If the audit findings indicate that any property has escaped assessment or been underassessed, the
Deputy Director, Property and Special Taxes Department will recommend to the Board that an
" escape assessment" for the property should be made. If the Board approves the escape
assessment, at least 30 days prior to transmitting a statement of assessment of the escaped
property, a " Notice of Escape Assessment" describing the escape assessment and advising of
appeal rights is sent to the assessee. The process for appealing an escape assessment and filing a
claim for refund is the same as that followed for contesting other Board assessments, as previously
discussed.
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SUMMARY OF APPEALS ACTIVITIES AND PERTINENT DATES AND/ OR DEADLINES
VALUATION PROCESS
Action ( By Taxpayer Unless Noted) Date/ Deadline
File property statement By March 1
Board holds public hearings February and May
Board issues notice of value — Unitary
properties
By June 1
Board issues notice of value —
Nonunitary properties
By last day of July
Assessment becomes final July 20 for unitary property if a timely petition for
reassessment is not filed with the Board.
September 20 for nonunitary property if a timely
petition for reassessment is not filed with the Board
APPEALS OF ASSESSMENTS AND RELATED PENALTIES
Action ( By Taxpayer Unless Noted) Date/ Deadline
Request copy of staff capitalization
studies/ calculations
File petition for reassessment of unitary
property
Petition for reassessment of unitary property to be
filed no later than July 20 of the year of the
assessment notice
File petition for reassessment of
nonunitary property
Petition for reassessment of nonunitary property to be
filed no later than September 20 of the year of the
assessment notice
File claim for refund With original petition, or with county within four
years of payment of the tax
Board hearing and decision By December 31 of the year in which the assessment
is made
File action in superior court After Board denial of a petition and claim for refund,
within four years of the mailing date of the Board's
written decision on the petition or the mailing date of
the Board's written findings and conclusion on the
petition, whichever is later; or within 6 months after
denial of a timely filed claim for refund or if after
6 months the board of supervisors has not taken action
on claim for refund, an action may be filed at any time
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APPEAL OF ALLOCATED ASSESSMENT
Action ( By Taxpayer Unless Noted) Date/ Deadline
File petition for correction with Board Petition for correction may be filed no later than
July 20 of the year of that notice
File claim for refund With original petition, or with county within four
years of payment of tax
Board hearing and decision As specified in hearing notice, but by December 31
of the year in which the assessment is made
File action in superior court After Board denial of a petition and claim for
refund, within four years of the mailing date of the
Board's written decision on the petition or the
mailing date of the Board's written findings and
conclusion on the petition, whichever is later; or
within 6 months after denial of a timely filed claim
for refund or if after 6 months the board of
supervisors has not taken action on claim for
refund, an action may be filed at any time
CONTESTING THE RESULTS OF AN AUDIT
Action ( By Taxpayer Unless Noted) Date/ Deadline
Let auditor know you disagree with